A subsidy is likely to increase consumption the most in a scenario with; elastic demand and inelastic supply.
Explaining Elasticity and Supply of Demand.
The subsidy can effectively encourage consumers to buy more of the good (due to elastic demand), and the quantity supplied won't increase substantially (due to inelastic supply), leading to a relatively larger increase in consumption.
A subsidy is likely to increase consumption the most in a scenario with; elastic demand and inelastic supply.
Elastic Demand: When demand is elastic, consumers are more responsive to price changes. A subsidy, which effectively lowers the price for consumers, will lead to a relatively larger increase in quantity demanded.
Inelastic Supply: When supply is inelastic, producers are less responsive to price changes. Even if the subsidy increases the price that producers receive, the quantity supplied won't increase significantly.
Complete Question:
In which of the following scenarios will describe a subsidy increase consumption the most in the price elasticity of supply and demand for a particular good?
Elastic demand, inelastic supply elastic demand, elastic supply inelastic demand, elastic supply inelastic demand, inelastic supply.